When Hong Kong businessman Sunny Yip Yuk-chik heard about a new scheme that would make it easier and cheaper to borrow Chinese yuan, he immediately called his staff on the Chinese mainland with the news.
Earlier this month, the Hong Kong Monetary Authority (HKMA) launched a 100 billion yuan (US$14 billion) Renminbi Business Facility (RBF) that would enable business owners like Yip to borrow yuan from Hong Kong banks for up to 12 months at the onshore yuan interest rate, easing trade settlements.
“I would consider a yuan loan to expand my business on the mainland because it avoids the exchange rate risks and the cost is cheaper than loans in Hong Kong dollars,” said Yip, who operates a sewage treatment plant in Zhaoqing in the Greater Bay Area.
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Hong Kong dollar interest rates are more than double those of mainland yuan loan rates.
The RBF was among a range of measures announced by Hong Kong and mainland regulators to promote the city as a leading offshore yuan trading centre and to encourage more international investors and companies to use the Chinese currency.
Sunny Yip Yuk-chik poses in front of his sewage treatment plant in Zhaoqing on October 9, 2019. Photo: Handout alt=Sunny Yip Yuk-chik poses in front of his sewage treatment plant in Zhaoqing on October 9, 2019. Photo: Handout>
In December, the scheme will be expanded to include direct investments for mainland firms to secure yuan loans to invest overseas or for foreign firms to get yuan funding to expand on the mainland.
Although the yuan, officially called renminbi, is not fully convertible, Beijing had begun since 2009 to allow international investors to use the currency for trade settlement. It has come a long way since then.
As of August this year, the yuan was the second most-used currency in global trade finance, with a 7.6 per cent share, second only to the US dollar at 81.4 per cent, according to Swift, the banking industry’s messaging network system. The yuan’s share was 6 per cent last December and only 2.1 per cent four years ago.
Over the years, there have been a number of projects and reforms designed to promote international use of the currency, including the stock connect scheme rolled out in 2014, which allowed cross-border trading of stocks between Hong Kong and Shanghai.
A Shenzhen leg was added two years later, and the scheme later expanded to include other products such as bonds, swaps and exchange-traded funds. The latest is a cross-boundary bond repurchase (repo) arrangement launched last month.
Hong Kong is the largest offshore yuan market worldwide, with 76 per cent of offshore yuan payments in August conducted in the city, according to Swift. Hong Kong’s banks had 968 billion in yuan deposits as of August, 16 per cent higher than the 837 billion yuan in January 2023, when the city reopened its border after the Covid-19 pandemic.
Yuan remittances via Hong Kong for trade settlements rose 62 per cent during the same period to 997 billion yuan in August, according to data from the HKMA.
The new bond repo scheme allows more than 800 international institutional investors in the northbound Bond Connect scheme to use onshore holdings that are sub-custodied at the Central Moneymarkets Unit of HKMA as collateral to secure funding from the onshore repo market. They can then use the onshore yuan in offshore markets such as Hong Kong.
“All these measures were aimed at promoting three directions in the yuan businesses, namely to create an ecosystem for investment, financing and hedging the currency,” said Charles Lam, Citi’s Hong Kong head of markets, who was involved in the discussions leading to the launch of the repo connect scheme.
Charles Lam, Citi’s Hong Kong head of markets, is interviewed at his office in Central, October 13, 2025. Photo: Sun Yeung alt=Charles Lam, Citi’s Hong Kong head of markets, is interviewed at his office in Central, October 13, 2025. Photo: Sun Yeung>
This would substantially boost the supply of yuan for international investors, leading to more stability in the interest rate market for offshore yuan, Lam said. “The pricing differentials between the onshore yuan and offshore yuan would also be narrowed,” he added.
Regulators are pushing reforms to promote the yuan business amid decreasing demand for US dollar assets, according to Cusson Leung, chief investment officer of KGI, a Hong Kong and Singapore-based financial firm.
“Global investors are losing confidence in putting all their assets in the US dollar after President Donald Trump started the trade war in April,” Leung said. “Investors want to invest in gold, China and Hong Kong stocks, as well as assets in other currencies, including the yuan.”
“This would encourage more investors to buy yuan-denominated dim sum bonds, while other business sectors would be more willing to use the yuan to settle trade and make investments,” Leung said, adding that it was positive for Hong Kong as it would strengthen the city as an offshore yuan trading centre.
HSBC and Standard Chartered were among the first lenders to participate in the cross-border bond repo market.
“The new repo arrangement is a ‘win-win’ for both foreign institutional investors and mainland lenders,” said Wong Tsz-Cheuk, head of markets and securities services at HSBC Hong Kong.
Wong said the repo arrangement was a typical way for mainland banks to lend yuan to other banks or investors, as they rely on collateral such as government bonds and other high-quality bonds as risk mitigation. The asset management companies, insurers and banks which invest through bond connect were qualified to tap funds from the repo under the new scheme.
It would also lower the cost of yuan funding for international investors because the offshore yuan interest rate was higher during times of stress, and the pool was smaller than the onshore yuan, Wong said. The offshore yuan’s implied interest rate reached 8 per cent at the start of this year compared with the onshore rate of 1.5 per cent to 1.9 per cent.
“While banks can get their yuan funding easier and cheaper, it would also encourage them to introduce more yuan loans and other yuan products,” Wong said. “For mainland banks, it would create new business opportunities for them as they can lend out their yuan to international investors to earn more interest income.”
Citi’s Lam said the next step would be to develop a central clearing agency to settle all repo lending among investors and lenders, as this would reduce counterparty risks and documentation, and standardise the current bilateral repo arrangement between banks.
Europe and the US had their own central clearing agencies for bonds and repo arrangements, so Hong Kong should push to take the lead as a regional clearing centre, Lam said.
A bank employee count yuan notes next to US dollar notes in Bangkok, Thailand, January 26, 2023. Photo: Reuters alt=A bank employee count yuan notes next to US dollar notes in Bangkok, Thailand, January 26, 2023. Photo: Reuters>
Last month, the HKMA and Securities and Futures Commission announced a road map to further promote the city’s fixed income and other yuan-based businesses. It included plans for a central clearing agency to replace the bilateral lending agreement between banks, but the timeline was not yet fixed.
Philippe Dirckx, managing director and head of fixed income at the Asia Securities Industry and Financial Markets Association (Asifma), supported the move.
“The next step is to connect mainland China and Hong Kong’s market infrastructure with international systems such as Euroclear, Clearstream and global custodians, enabling Chinese government bonds held in Hong Kong to be used as collateral globally,” Dirckx said.
“This cross-border triparty connectivity is crucial for the full internationalisation of Chinese bonds, allowing assets under Bond Connect to serve financing and margin needs not just in mainland China and Hong Kong, but across major global markets,” he said.
Dirckx added that the new measures highlighted the commitment by Chinese regulators to make Hong Kong a “true regional liquidity hub, not just for RMB cash clearing, but also as an issuance, secondary market and collateral centre”.
The measures have proved popular. Sewage treatment businessman Yip is not alone in finding the RMB Business Facility useful. Industrial and Commercial Bank of China (Asia), the Hong Kong arm of the nation’s biggest bank, conducted a number of transactions for clients using the facility on the first day of its launch on October 9.
They included companies in energy, metals and papermaking, as well as institutional clients of key domestic and overseas ICBC branches in Guangdong, Singapore and Dubai.
“The introduction of the RMB Business Facility will further optimise the offshore RMB liquidity supply mechanism in response to market demand, effectively alleviating liquidity constraints and interest rate fluctuations in the offshore RMB market,” said Duan Mengche, assistant chief executive of ICBC (Asia). She noted that the bank had provided nearly 120 billion yuan in trade financing for its customers since 2024.
“Our clients have expressed that this enhancement provides a more stable, preferential and flexible source of RMB funding,” she said.
The new measures would also help Hong Kong to further develop its foreign exchange and bond markets, according to analysts.
When veteran foreign currency trader Jasper Lo Cho-yan started trading in 1987, the currencies he dealt with included the pound, Japanese yen, Australian dollar and Deutsche mark; the yuan was not among them.
A woman walks past a sign showing the Chinese yuan and the US dollar symbols in Hong Kong on November 28, 2012. Photo: AFP alt=A woman walks past a sign showing the Chinese yuan and the US dollar symbols in Hong Kong on November 28, 2012. Photo: AFP>
“But now, the yuan is among the most actively traded foreign currencies in Hong Kong,” Lo said. “While Singapore and London are bigger than Hong Kong in terms of overall foreign currency [trading], they cannot compete with Hong Kong in terms of yuan trading.”
The internationalisation of the yuan is why Hong Kong was able to keep its position as the fourth largest foreign currency trading market worldwide last year, up from the seventh in the early 2000s, according to Lo.
David Yim Sau-king, head of debt capital markets for Greater China and North Asia at Standard Chartered, pointed out that in July Beijing allowed non-bank financial institutions, such as insurance companies and asset managers, to invest in bonds in Hong Kong via the southbound route of the Bond Connect, boosting liquidity in the market.
“This can potentially provide a huge amount of liquidity in the dim sum bond markets,” Yim said.
When Yip set up his treatment plant in China in 2016, he borrowed about HK$20 million (US$2.6 million) from banks in Hong Kong but had to exchange it into yuan to invest on the mainland.
With the new RMB facility, Yip has been arranging meetings with his bankers in Hong Kong to explore opportunities for a yuan loan.
“Although we can get bank loans in China nowadays after operating there for a decade, we would still like to get loans in Hong Kong as the local bankers understand the needs of Hong Kong enterprises,” he said.
